Purpose test for subsidies treated state-funded mining assistance as capital receipt, with consistency maintained on unchanged facts.

Financial assistance received from the State fund for development of a coal block was treated as a capital receipt because it was sanctioned to facilitate setting up and development of the mining project, not to meet routine business expenses. Applying the purpose test for subsidies and grants, the assistance was linked to capital infrastructure rather than revenue operations. On identical facts, the receipts had already been assessed as capital receipts in earlier scrutiny years, and in the absence of any material change, a contrary view for the year under review was unsustainable. The receipt was therefore not chargeable to tax, and the addition was deleted.

---

---

Issues: Whether the financial assistance received from the State fund for development of the coal block was a capital receipt or revenue receipt, and whether the Revenue could depart from the consistent view taken in earlier assessment years on identical facts.

Analysis: The assistance was sanctioned for development of the coal block and not for meeting routine business expenses. The object of the grant was to facilitate setting up and development of the mining project, bringing the case within the purpose test applied by the Supreme Court to determine the character of a subsidy or grant. The facts remained unchanged across earlier years, in which the same receipts had been assessed as capital receipts under scrutiny assessments. In the absence of any material change, and given the settled principle that though res judicata does not strictly apply to income-tax proceedings, a consistent view should ordinarily be maintained where a fundamental fact pattern continues unchanged, the contrary view taken for the year under appeal was unsustainable.

Conclusion: The grant/financial assistance was held to be a capital receipt not chargeable to tax, and the addition was deleted in favour of the assessee.

---